Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd

Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392 Alcock v Robb (1978) 2 BPR 9625 Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 CASES CITED : United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR Chan v Zacharia (1984) 154 CLR 178 Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1 Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 Troulis v Vamvoukakis [1998] NSWCA 237 Barnes v Addy (1874) LR 9 Ch App 244 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

TEXTS CITED : Ritchie's Uniform Civil Procedure NSW Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed (2002)

Liquor National Wholesale Pty Ltd - Plaintiff The Redrock Co Pty Ltd - First Defendant PARTIES : Ian Kinsella - Second Defendant Simon Stonier - Third Defendant Australian Pure Waters Pty Ltd - Fourth Defendant

D.A. Allen [Plaintiff] COUNSEL : A.M. Seward [First, Second & Third Defendants] J.R. Clarke [Fourth Defendant]

Ramsland Graham [Plaintiff] SOLICITORS : Kemp Strang [First, Second & Third Defendants] Oakley Thompson & Co [Fourth Defendant]

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50082/2007 LIQUOR NATIONAL WHOLESALE PTY LTD -V- THE REDROCK CO PTY LTD & ORS JUDGMENT

1 HIS HONOUR: These proceedings arise out of a terminated joint venture which the plaintiff and the first defendant conducted and which distributed soft drinks supplied by the fourth defendant. 2 The plaintiff claims that the first defendant breached its fiduciary duty by appropriating to itself the joint venture business. It claims that the second and third defendants caused the first defendant to breach and that the fourth defendant was knowingly concerned in it.

FACTUAL BACKGROUND The Parties 3 The plaintiff is a company controlled by Mr David James. Mr James owns another company called Liquor National Pty Ltd ("Liquor National"). 4 The plaintiff is a distributor of beverages, mainly alcoholic. At all material times it has carried on business from a warehouse at Homebush, New South Wales. Until sometime in 2007 the plaintiff used, as one of its trading names, Blue Hills Liquor Distributors. Its activities include wholesale wine distribution throughout New South Wales and broad range liquor distribution in the Sydney metropolitan region. The plaintiff also sells non-alcoholic beverages to licensed premises.

5 The first defendant is associated with the second defendant Mr Ian Kinsella and the third defendant Mr Simon Stonier. 6 For about 12 years until September 2005 the first defendant had operated a soft drink distribution business using the unregistered trading name and logo:

7 "Split Rock" and "Tiro" are brands of bottled water products manufactured by the fourth defendant (or "APW" as the case may be). Tiro comes in a range of flavours including pink grapefruit, Italian red orange, passionfruit, lemon, raspberry and chinotto. Unless the context otherwise indicates I shall refer to the Split Rock and Tiro products collectively as "Split Rock". 8 Mr Michael Valmorbida is the sole director of APW. 9 As at September 2005 the first defendant was the exclusive distributor of Split Rock in New South Wales and the Australian Capital Territory. There was no formal distribution agreement. However, APW had provided the first defendant with a letter of engagement in the following terms, confirming the existence of the arrangement: "Letter of engagement

Australian Pure Waters has a solid and extremely close relationship with Redrock and particularly Ian Kinsella who I personally respect and have enjoyed a professional working relationship with.

I am personally optimistic and positive of Redrocks ability to perform in the years ahead under the current restructure.

This letter serves a confirmation of the engagement of The Redrock Co. Pty Ltd has the exclusive distribution for Australian Pure Waters and all its' [sic] products in the territory of NSW and the ACT.

This arrangement has been in place since August 1993 and remains firm.

To ensure clarity and adequately reflect changes in trading terms and product portfolio, a more detailed distribution agreement is currently being formalized for the benefit of both parties.

This agreement will also serve to substantiate continued investment in the distribution infrastructure necessary to deliver and support growth in future years.

Michael Valmorbida Australian Pure Waters" 10 Prior to October 2005 the first defendant supplied the plaintiff with Split Rock for on sale.

The Heads of Agreement 11 In early 2005 the first defendant was under financial strain. Its account with APW was out of order. APW ceased delivering stock until the account position was rectified. The first defendant was examining refinancing alternatives. 12 In about June 2005 the plaintiff and the first defendant (represented by Messrs Kinsella and Stonier) conducted negotiations with a view to becoming associated with one another. 13 Heads of Agreement between the plaintiff and the first defendant were prepared for signature. 14 On 19 September 2005 the first defendant executed the Heads of Agreement and sent it to the plaintiff for signature. The plaintiff never signed although both Mr Stonier and Mr Kinsella asked Mr James on more than one occasion to sign it. 15 It will be necessary to refer to various parts of the Heads of Agreement. The whole of it is included as Schedule A to this judgment. 16 The Heads of Agreement contemplated the formation of a new company, Redrock Distributors Pty Ltd ("RD Company") which was to acquire the sales and distribution activities of the first defendant. The plaintiff was to hold 51 percent of the shares in the RD Company and the first defendant 49 percent. The Heads of Agreement contemplated that the parties would conclude a Put/Call Agreement enabling either party to procure a buy out of the other's shareholding. The Heads of Agreement contemplated a formal distribution agreement being entered into with APW. 17 The Heads of Agreement provided that for 18 months the profits from RD Company would be used to repay identified liabilities of the first defendant, and that all monies collected or received by the first defendant for debtors or asset sales would be used towards reduction of its liabilities. The plaintiff agreed to forego any share of profits from RD Company for 18 months. The plaintiff would be responsible for warehousing and distribution and would perform those functions would be performed at $2.50 per case until April 2007, with a review to market not exceeding $3.25 per case for the following six months, then further reviews each 12 months. The Heads of Agreement provided that the plaintiff would provide personnel to cover customer relations, purchasing, stock control, accounts payable, accounts receivable and debt collection. The Heads of Agreement made no specific provision for any financial allowance to the plaintiff in respect of administration as opposed to warehousing and distribution activities. The Heads of Agreement contemplated that RD Company was to maintain its operating overheads at $2.50 per case and that wages and expenses of directors and shareholders were to be maintained at commercially acceptable levels for the tasks performed with a focus on keeping costs to a minimum to ensure rapid repayment of the first defendant's debts. The Heads of Agreement provided that RD Company would fund sales and marketing activities from the $2.50 case allowance. 18 The plaintiff's solicitors never documented the Heads of Agreement in legal terms. The RD Company was not formed. No Put/Call Agreement was concluded. No exclusive arrangement with APW was entered into. 19 Mr James says he had a conversation with Mr Kinsella in which they agreed that the business would instead be run through the plaintiff, which would be paying all the bills. Mr James says that he thought it was safer not to use the contemplated separate entity because the first defendant was in financial straits and its interest in the entity would be at risk. Mr Stonier's evidence was that in November 2005 Mr James said to him that they would use Liquor National to conduct the transactions of the joint business. 20 Notwithstanding the non formation of RD Company and the failure to implement other requirements of the Heads of Agreement, from 1 October 2005 the parties became associated in a joint enterprise which involved the plaintiff making available its warehousing and distribution capabilities and the first defendant making available its sales and marketing capabilities, which consisted principally of the services of Messrs Kinsella and Stonier. The parties have referred to the arrangement variously as a partnership, a joint venture and a joint business. It is not put that it was a partnership. I shall refer to their arrangement as "the joint venture" and, where appropriate, to the joint enterprise as "the joint venture business." 21 The plaintiff did the purchasing of product, invoicing of customers and collection of sales proceeds. It employed Messrs Kinsella and Stonier and a number of other people including Mr Gerry Rubbo. Salaries were paid through a related company of the plaintiff styled Killara 9 Pty Ltd. Messrs Kinsella and Stonier were each paid a salary of $100,000 per annum. The plaintiff acquired certain equipment (including some motor vehicles) from the first defendant. 22 The first defendant retained certain assets earlier acquired, such as motor vehicles. Some of these assets were used in the joint venture business. The first defendant continued to incur costs in its own right in connection with the joint venture business by, for example, providing free fridges to customers and vehicles to sales staff.

23 Sales of Split Rock to non licensed customers were for the most part done under the trading name and logo:

24 Sales of Split Rock to licensed customers were for the most part done under the trading name Blue Hills Liquor Distributors. There was a bit of overlap. 25 The invoices made it clear that the plaintiff entity was the seller trading under a trading name. 26 The plaintiff assumed responsibility, in practical if not in legal terms, for the first defendant's debt to APW. An account with APW was opened in the name of Liquor National. On 9 November 2005 in an email to APW copied to Mr James, encaptioned Liquor National t/a Redrock, Messrs Kinsella and Stonier wrote as follows: "Following up your request for information.

The original credit application will be forwarded to you by David James.

The contact details for Liquor National Accounts Payable is Sue Wardle (in Newcastle) on phone 02 4908 5861 or by email at swardle@liquornational.com.au

Ian briefed Michael on the proposed company structure prior to the agreement being finalised, and it remains unchanged. We have entered into a joint venture with Liquor National. The joint venture allows Liquor National to handle all stock purchasing and logistics functions, while Redrock Distributors handles all sales and marketing functions.

Therefore the entity which purchases APW stock is Liquor National, hence the credit application you have recieved [sic]. Liquor National is a large private company with a single shareholder and director which is David James. This is the parent company of a large group with various interests, including Blue Hills Liquor Distributors, Australian Beverage Distributors (wine distibution [sic] nationally), and a number of wineries including James Estate and Serenella Estate in the Hunter Valley.

This joint venture allows the two entities to concentrate on their areas of expertise. Liquor National provides much greater security for increased stock purchasing, while Redrock can focus entirely on sales and promoting brands. As a result of our improved credit standing, we can improve stock holdings and delivery schedules, and increase marketing initiatives.

In terms of the APW account, Redrock Beverages ceased to be the purchaser with the last shipment to Mascot (and the last invoice will be paid tomorrow). During the last month we have cleared the balance of our old account, to remove APW's exposure to the old company's financial position. Since 1st October 2005 the purchaser is Liquor National trading as Redrock Distributors. Liquor National have advanced Redrock the funds to clear the old account, and are now working towards reducing the payment cycle from 45 days down to Michael's target of 30 days as quickly as possible. This can be achieved by making an extra invoice payment each fortnight over the coming weeks, ensuring that we are trading with you on 30 day terms before the summer peak.

There is also an outstanding invoice for interest charges in your system which I have yet to finalise with Michael.

I hope this provides you a clear understanding of the trading relationship and gives APW confidence in the security this new distribution structure provides. With this structure now settled, and the account in order, we are keen for Michael to see our new operation as soon as is practical, and most importantly to gain his input into the sales and marketing plans." 27 The references to Michael are to Mr Valmorbida. It is also apparent that in their dealings the parties regularly referred to "Liquor National" as meaning that entity or the plaintiff or both. 28 Shortly after the commencement of the joint venture, Mr Kinsella approached Mr Valmorbida and requested him to agree to an exclusive distribution agreement with Liquor National. Mr Valmorbida's attitude was that he would only consider entering into a formal exclusive distribution agreement once there was a history of strong reliable problem-free trade between APW and Liquor National. Mr Valmorbida gave evidence of continuing problems with the account. He never committed APW to any exclusive arrangement with the plaintiff or Liquor National.

A brief summary of the course of the relationship 29 As at 1 October 2005 the first defendant owed trade creditors (including APW) some $500,000. It also had unpaid tax liabilities and outstanding obligations to the Office of State Revenue. 30 Almost from the outset the relationship between the plaintiff and the first defendant was not, it seems, a particularly easy one. Sources of tension included the first defendant's poor financial position which the plaintiff had to subsidise, and less than expected sales of Split Rock. 31 Sales of Split Rock declined from 2005 to 2006. Mr Valmorbida communicated concerns to Mr Kinsella.

32 By 3 May 2006 the plaintiff was concerned that "doing it at $2.50 a case" (meaning providing logistics and administration at that price) was not viable, that is, that the amount it agreed to accept for those services was not enough. 33 The first defendant made continuous requests for money from the plaintiff, amongst others to make payments to the Australian Tax Office. 34 On 1 September 2006 Mr Kinsella on behalf of the first defendant received from the Office of Fair Trading a Certificate of Registration of the business name "Redrock Distributors" reflecting the first defendant as the proprietor of that business name. This must have been preceded by an application. The application was not in evidence. 35 In early November 2006 Mr James retained a Mr David Brooks as a consultant to advise in respect of the joint venture business. In his affidavit evidence, Mr James described Mr Brooks as a former solicitor whose practising certificate was cancelled and who had ceased practising after being subject to an adverse decision in which he was held to have been deceitful in a transaction in which he acted for Mr James (the same findings being made against Mr James). 36 It seems that the introduction of Mr Brooks into the parties' dealings brought with it a sea change. 37 Sometime in November 2006 Mr James, Mr Brooks, and Messrs Kinsella and Stonier met. Messrs Kinsella and Stonier asserted that the plaintiff owed it money under "their agreement". The plaintiff's position was that it was losing money and that the cost of delivering a case was significantly more than $2.50. Mr Stonier complained that the plaintiff was not abiding by the "integrity of the agreement". Although the plaintiff had not previously done so, Mr Brooks on its behalf now raised doubts whether there was any agreement at all. 38 There were further meetings. Tensions escalated. 39 On 21 November 2006 Mr James announced (apparently without first consulting Messrs Kinsella and Stonier) that there was to be a "restructure" of the liquor division of the plaintiff, and that he would outline the structure at a meeting on 26 November 2006. A structure diagram was in evidence which indicated that it was proposed that Messrs Kinsella and Stonier would be part of a group working under the Blue Hills banner which would include the Redrock operation. In the end result the restructure did not occur. 40 In late November 2006 the Australian Taxation Office ("ATO") served a Directors' Penalty Notice on Messrs Kinsella and Stonier for $20,893 and a statutory demand on the first defendant for $184,744. 41 This led Messrs Kinsella and Stonier to consider the appointment of a voluntary administrator to the first defendant, intended to be followed by a Deed of Company Arrangement. Messrs Stonier and Kinsella met with the first defendant's accountants and financial advisors on 6 December 2006. 42 Some weeks later (not before 1 February 2007) Mr Stonier prepared some notes dealing with the 6 December 2006 meeting. The notes include the following: "We now wish to further confirm the process that would be required to manage this liability, and the subsequent refinancing and continuation of the business, through a Voluntary Administration (VA), and a Deed of Company Arrangement (DOCA).

We further believe that we are unable to rely on our current logistics provider to make the payments owing to us under our agreement. We also believe that the cost to outsource delivery of our products to another logistics provider is unnecessary and excessive. We therefore wish to proceed on a proposal that includes the refinancing of a new warehouse, forklift, trucks, and the ownership of our own inventory. We have confirmation for a distribution agreement from our principal stock suppliers to proceed on this basis." 43 During December 2006 the first defendant claimed that a cumulative total of over $66,000 was due to it from the plaintiff. 44 In late December 2006 Mr James and Mr Brooks met with Mr Kinsella. According to Mr James he said that if the business was to work Mr Stonier would have to go because it was too expensive to pay two wages of $100,000. He says that Mr Kinsella responded that he would take it up with Mr Stonier. According to Mr Kinsella, he replied that Mr Stonier had already agreed to step down but that they needed an assurance that the plaintiff would continue to honour the agreement.

45 On or about 15 January 2007 the first defendant invoiced the plaintiff for $11,854.70 for its share of profits. 46 According to Mr Kinsella he met with Mr James, Mr Brooks, a Mr Irving and Mr Stonier on 31 January 2007. He says (as does Mr Stonier) that Mr James made it clear that he did "not want money flowing outside the group" to Redrock Beverages, meaning the first defendant. 47 In early to mid February 2007 email exchanges took place between Mr Brooks and Messrs Kinsella and Stonier concerning financial aspects of the joint venture business. 48 On 9 February 2007 Mr Brooks sent an email to Messrs Kinsella and Stonier with a preliminary review of financial figures they had provided. In the email he referred to "this alleged agreement". He put that if true overhead costs were calculated he would not be surprised "if it hit the $2.50 or $3.25 limit and exceeded it" (meaning in effect that the $2.50 per case logistics allowance was insufficient to cover the plaintiff's true costs). He also expressed the view that Mr Stonier might find other work so as to reduce the overheads of the joint venture business. 49 On 15 February 2007 Messrs Kinsella and Stonier responded to Messrs Brooks and James with their views on the review. Amongst others, they asked in what way it was being alleged that the agreement "is alleged". In relation to overheads they suggested that Mr Brooks was misreading the document (ie. the Heads of Agreement) which clearly defined the two roles of logistics and administration versus sales and marketing. They also referred to the fact that Mr Stonier had expressed the willingness to take the allocation of his salary away from the joint business on condition that the integrity of the business and the agreement were maintained and that the resources were spent on additional sales staff for the business. 50 On 16 February 2007 Mr Brooks sent an email to Messrs Kinsella and Stonier. The document is lengthy. I will not set it out in full. The following are extracts from it: "8. Alleged agreement. Try this - no agreement signed by Blue Hill,s [sic] the first material term of the alleged agreement - ie creation and running of a new company never took place, assignment of the key license agreement never occurred. Do I need to go on? While the parties have acted in accordance with some of the terms of the alleged agreement, they have also not acted in accordance with others. By what legal wizardry do you suggest that an agreement along the terms of the one signed by you (one party) exists?

9. Interpretation of agreement. Thank you for your suggestion that I cant [sic] read or comprehend a document. Frankly my lack of comprehension only extends to your explanation. There is nothing to suggest that the $2.50 logistics charge covers administration. The section referring to the $2.50 only refers to logistics (warehousing and distribution). Even the circular diagram suggests $2.50 only covers logistics. The next heading deals with administration but does not state that the administration is provided free of charge. It does not refer to any charge at all. However, it is clearly implied that there are overheads of the business as stated under the heading of 2006/2007 profits . The document does not read that the $2.50 only relates to sales and marketing. I note that only 1 previous document suggested an arrangement where the administration would be covered by Blue Hills but that document also suggested a different initial profit split! Other documents either suggest nothing or that management is included in the $2.50. It belies commercial common sense to suggest that administration would be provided free in perpetuity. The argument itself is another reason why the "alleged" agreement is only that - "alleged"

10. Simons [sic] position - if the "integrity" of the agreement was to be maintained, then Redrock ought to be keeping its overheads to a minimum. I sought to explore in a friendly fashion whether that was being achieved. Frankly, I dont [sic] care what you have said to whom in the past. The question was simple. What does Simon do and is it justifiable keeping him on at the current rate of remuneration. It is a direct question. An indirect response does not help the situation. This is not a negotation situation where other factors can be bought in. It is not a situation where we will agree to reduce Simons [sic] wages on condition we spend somewhere else (how on earth is this keeping with the integrity of any agreement which is supposed to minimise overheads and costs). It is simply, what does Simon do so that it can be determined as to whether a) what remuneration is suitable for the work done, and b) whether it is necessary to retain Simon at all. Simon, or for that matter anybody else, is more then [sic] welcome to look at the integrity of the arrangement, or do any other matter that relates to Redrock/Blue Hills at his own cost.

11. Integrity of the agreement. Overall, this seems to be a case of integrity of the agreement as you believe it exists with your beliefs as to how it should be interpreted. It also seems to be integrity of the agreement ignoring some of the critical terms such as assignment in of the APW license and keeping overheads to a minimum. Just because we disagree with your version of the arrangement does not mean that we are the ones lacking integrity. On my version of the arrangement, there is no debt owing by Blue Hills as easily any recharge for administration would offset any debt claimed. I note that the argument has been raised in the past that the APW license could not be assigned since the new company was not set up. If the setting up of the company was critical to this condition, why isnt [sic] it critical to the rest of the supposed conditions which require funds flowing through that new company. You cant [sic] have it both ways. Either the "agreement" can be enforced without the new company (and the APW license transferred to Blue Hills) or it cannot. Once again, it is justification of my approach to simply look at the whole matter afresh so that the appropriate profit can be made by all with a more suitable agreement in place. If your response was designed to inflame, and I suspect that when I hear back from Paul and Bruce that inflammation will only be exacerbated, then mission accomplished. In essence unless we can get a plan for the Redrock business unit to make a positive contribution to the underlying profit then [sic] in terms of moving forward, I cant [sic] see any other solution other then [sic] to discontinue the business unit and shrink our excess sales/admin overhead and find alternative and more profitable logistics revenue." 51 On 9 February 2007 there was sent to Mr Stonier's home email address a zip file containing a list of the plaintiff's customers across all its divisions. 52 On 14 February 2007 Mr Stonier obtained from Telstra an application for a freecall number and 13 line services. 53 Also on 14 February 2007 Susanne Haussener, an employee of the plaintiff who worked in the joint venture business, sent to Messrs Kinsella and Stonier via email a document entitled Redrock Distributors New Accounts Register which was a list of customers of the joint venture business reflecting the names of clients and the dates on which their accounts were opened. 54 On 16 February 2007 Mr Stonier emailed a patent attorney Mr Brett Lewis with a request to proceed with Trademark Registrations of Redrock Beverages and Redrock Distributors and the "bottle cap" logo that applies to both names. 55 Also on 16 February 2007 Mr Kinsella sent to Mr James O'Neill of Colliers International, a real estate agent, the following email: "James, Further to our site inspection, we would like to confirm our proposal to lease Unit 1, 1307 Botany Road, Mascot. Our offer is as follows.......... · 3 year lease with 3 year renewal option · 3 month rental deposit bond paid (or bank guarantee in lieu of) · 3 months rent free period · rental at $55,000p.a gross (including gst and outgoings) Our proposal is subject to the following maintenance items being attended to......... · Air conditioning must be cleaned and in working order · Repair and/or replacement of window blinds · removal and patching of partition wall (non structural) at top of stairs · thorough commercial cleaning throughout offices/ammenities [sic] and warehouse · removal of old company signage from ground floor windows · repair of leaking taps · repair of loose/dangerous electrical fittings, including relocation of 3 phase outlet · patching of holes in warehouse floor for smooth operation of electric forklift. Redrock Beverages have been operating warehousing and delivery of soft drinks in the Sydney market for 14 years. Until recently we have contracted our warehousing and logistics function to a third party, but will not be renewing this contract at the end of February. Therfore [sic] we are in a position to take up the lease immediately and would like the preparations to be carried out promptly in order to be operational by March 1st. Your earliest possible response would be appreciated. Please feel free to contact me either by return email or on 0411 223348. Sincerely, Ian Kinsella Director - Redrock Beverages 0411223348" 56 On or about 19 February 2007 the first defendant invoiced the plaintiff for $18,872.70 asserted to be owing as its share of profits. 57 On 21 February 2007 Colliers International received a lease proposal for the premises at Mascot, presumably from the landlord.

Termination of the joint venture 58 On 21 February 2007 Mr James sent an email to Messrs Kinsella and Stonier. It is necessary to set it out in full: "Simon/Ian I have reviewed your most recent email. The difficulty that is apparent is that Blue Hills and Redrock disagree on many fundamental aspects of this business. Firstly, we disagree as to whether an agreement exists or whether it is effective (given that the precondition of setting up a third company and the transfer of the distribution rights never took place). Secondly, we disagree as to the interpretation of the agreement. You refer to the heading "Administration" which ironically is the same heading I refer to. As pointed out, the heading discloses neither a right to recharge or an obligation not to. One then has to apply common construction techniques which I set out in my previous correspondence. That is what leads to the conclusions set out in my previous letter. Nevertheless, your disagreement on this point is noted. Thirdly, we disagree on whether Blue Hills owes Redrock monies. This issue appears tied to the second issue referred to above. No administration recharge has been applied. If it is, as we say we are entitled to, then Redrock owes Blue Hills monies. The precise amount is obviously one of conjecture (as there is disagreement over the appropriate recharge rate as set out below), but even applying the Redrock version of the sales admin charge will lead to Redrock owing Blue Hills monies. Fourthly, we disagree on whether Blue Hills has benefited from the business. Blue Hills has increased the throughput in its logistics and on that view has obtained an additional $2.50 per case benefit it would not have otherwise achieved. The difficulty with this contention is that it assumes Blue Hills Logistics would have remained static. There were a number of other options (including right sizing the logistics model) that were available that would have achieved better gains for Blue Hills Logistics. Exactly the same issue applies to the sales admin side for which there has been no recovery to date. Fifthly, we disagree on the profit calculations moving forward. I have set out the basis of my calculations and the justification for the same - which includes a calculation of the drop rates and comparable service providers. To date, no counter justification has been provided as to how your numbers for logistics and sales admin are feasible except for bold assertions that they are justified and your experience suggests the same. Please excuse us for not finding this line of argument compelling. Sixthly, we are at issue with the business model that ought to be employed. Once again, we have provided justification for what we see as an appropriate and cost effective model. Your response has been to dispute the same without providing any reasoning as to why the model does not work. Seventhly, there is presumably some disagreement about the level of overhead. The alleged agreement (and we stand by that description) states that overheads are to be kept to a minimum. We have on two occasions now sought clarification of exactly what Simon Stonier does so that his remuneration can be justified. In each response, that issue has been avoided. However, on that point, in each of you [sic] responses you have sought to deflect the question by saying you had discussions with me. So that it is clear, those discussions consisted of an assertion that the willingness of Simon to cease his employment was conditional upon him being replaced by two reps and some indication that Blue Hills would abide by the integrity of the agreement (presumably on the interpretation put forward by Redrock). In my view this did not satisfactorily resolve the issue. Eighthly, you claim that Blue Hills is in breach of the agreement. This is obviously denied by Blue Hills on the basis set out above, namely that firstly there is no agreement, and if there is some agreement (either arising from the conduct of the parties or otherwise), Blue Hills does not owe the monies claimed. To the extent that there is any agreement with The Redrock Company Pty Ltd (and we note that this is denied), Liquor National Wholesale Pty Ltd (trading as Blue Hills Liquor) hereby terminates that agreement. Termination is based on the failure of the following conditions precedent from occurring within a reasonable time: a) The failure of the parties to cause a new company, Redrock Distributors Pty Ltd, to be incorporated within a reasonable time after the entering into of the agreement b) The failure of The Redrock Company Pty Ltd to transfer to any new company, or to Liquor National Wholesale Pty Ltd the distribution rights with APW c) The failure by the directors of The Redrock Company Pty Ltd to minimize overheads of the division as required, and in particular, failure to justify the salary of Simon Stonier d) Fundamental breach of an implied term of the agreement that the directors of The Redrock Company Pty Ltd devote all their working hours to the operation of the softdrink division that was to be incorporated into Redrock Distributors Pty Ltd in that the directors have spent considerable working hours attending to the affairs of The Redrock Company Pty Ltd including development of soft drink products which have been registered for the benefit of The Redrock Company Pty Ltd. As can be inferred, these issues have been raised previously with you, and in particular by Mr James who has indicated that if they are not resolved then any arrangement that exists would be terminated. In any event and as an alternative, Liquor National Wholesale Pty Ltd hereby rescinds the agreement on the basis that the parties had committed a mistake as to the effect of the terms of the agreement, and as such were never in actual agreement. I have provided an offer for a continued relationship under cover of different letter. If that offer is not accepted (or some other form agreed) then the consequence of the matters raised above, the employment of Ian Kinsella and Simon Stonier will be taken to be terminated with effect from 5pm, 21 February 2007. Dated: 21 February 2007

David James" 59 On 22 February 2007 Mr Stonier signed a contract for the purchase by the first defendant of a delivery truck. 60 On 23 February 2007 on a letterhead of Redrock Distributors, Mr Kinsella replied as follows: "Dear David, We acknowledge receipt by email of your intention to terminate the current agreement between Liquor National and Redrock, and your attached proposal for a new agreement. After careful consideration, we thank you for your offer, but have chosen to accept your termination advice and opt not to enter into the proposed new agreement. Accordingly, under the strict terms of your proposal, we accept that as of this date, we must make arrangements to handle the distribution of our portfolio of brands elsewhere. Considering your remarks that a cessation of the Redrock business unit may require a shrinking of excess overhead, we would be willing to assist in this process if required. Of the equipment and vehicles purchased from Redrock in October 2005 we would offer to buy back any items which are now surplus to your needs. In addition, we would be willing to purchase any stock from our core portfolio that remains unsold after 7 days. We trust that this will assist you to extinguish all supplier accounts for stock which has been on-sold. Also during this time, we will make all reasonable effort to relocate our office equipment, computers and files to make that space available to any other prospective tenant. I trust this will assist a smooth extraction of our operation from yours, with minimal disruption to either party. As a consequence of the termination of the agreement, we advise that from this point on Liquor National is no longer authorised to purchase stock on behalf of Redrock. Furthermore, Liquor National is no longer authorised to sell stock under the Redrock Distributors name or logo or to use the Redrock name or logo in relation to any company name, business name, or trademark. We reaffirm our assertion that the balance owed to Redrock by Liquor National under the current agreement is now due and payable. This balance will increase when the reconciliation for February 2007 is complete. Upon settlement of the account in a conciliatory manner, we look forward to the resumption of the wholesale trading relationship that existed between us prior to this agreement. Yours sincerely,

Ian Kinsella Redrock Beverages" Events after termination of the joint business 61 On 23 February 2007, on a Redrock Beverages letterhead, Mr Kinsella wrote to Mr Valmorbida in the following terms: "Dear Michael, I write to inform you that The Redrock Co. Pty Ltd has agreed to the termination of our logistics arrangement with Liquor National Wholesale. Our concerns about their repeated failure to meet the terms of the arrangement have not been satisfactorily addressed. These included lack of co-operation in sales initiatives, lack of funding toward system improvements, inefficiency in warehousing methods forcing up costs, poor attitude toward small customers, but most importantly, failure to release funds owed to Redrock. This amount is substantial and the situation has caused unnecessary problems for Redrock, hindering our commitment to meeting our liabilities and severely diminishing our confidence in their operation. Simon and I have a responsibility to take whatever steps are necessary to maintain the financial viability of The Redrock Co. Pty Ltd and have taken all reasonable steps to negotiate fair revisions to the agreement. This has not proven worthwhile. In recognition of this, our bank has given us their full support to relocate to new premises and re-establish our own delivery fleet. This has required us to make a further substantial investment in Redrock's future and our long term commitment to our distribution relationship with APW. In so doing, today we have proceeded with orders for two new purpose built soft drink trucks. We welcome you to paint these new bodies in Splitrock and Tiro livery. We have also secured a new warehouse in Mascot, closer to the city and eastern suburbs, our primary customer base. In addition, we have also recruited two new sales reps to bolster our sales team for 2007. We recognize that this move could pose some short term difficulty for APW should Liquor National fail to pay their account in a timely manner. Knowing this, we offer our full cooperation to assist with the collection of any money owing to APW from LNW. To aid this process, could you forward a copy of the personal guarantee from David James and the financial statements accompanying his credit application to our new postal address, PO Box 668 Mascot NSW 2020. We understand that the balance owing from LNW to APW is an indisputable commercial transaction. If required, we will underwrite any legal costs incurred in the collection of these funds. We plan to be fully operational in our new premises by March 5th. The new address is Unit 1, 1307 Botany Road, Mascot. Having discovered today that a shipment has already left for Sydney, we have arranged temporary warehousing in Mascot to enable us to take delivery of this stock on Monday morning.

This is an exciting time for Redrock as we regain direct control of our distribution network and we sincerely appreciate your continued support. Yours sincerely,

Ian Kinsella" 62 By 23 February 2007 the first defendant had approached its bank, Westpac Banking Corporation, for funds to assist it in its proposed sole venture. Notes of the bank manager, Leonie Wood, record that the first defendant had approached the bank "to assist in the re-establishment of their business and the extrication from their alliance partner Liquor National." The notes also record that "Discussions have been held with the major supplier as well as the other smaller suppliers and all are happy to continue their relationship with Redrock in favour of Liquor National." 63 Mr Valmorbida's evidence was that he was on holiday from mid December 2006 to mid January 2007 and that on his return he was informed by Mr Kinsella of continuing problems the first defendant was having with the plaintiff. Mr Kinsella did not, however, indicate to him that he was considering ceasing relations with the plaintiff and re-establishing a stand-alone distribution structure. He says that after he received the letter dated 23 February 2007, he gave consideration to either sourcing another distributor for APW's products in New South Wales and the Australian Capital Territory or having APW establish its own distribution structure. He says that as he had a long-standing rapport and business relationship with Mr Kinsella and was ultimately unsatisfied with the business relations between APW and the plaintiff, he elected to use the first defendant as the sole distributor of APW's products in New South Wales and the Australian Capital Territory. 64 On 27 February 2007 Mr Valmorbida wrote to Mr James as follows: "Dear David As per the communication we received from Redrock, we have been informed they are going to now make the orders and supply Liquor National themselves as it was done previously. We expect normal payment within terms for the stock you have already received. Yours sincerely Michael Valmorbida Australian Pure Waters" 65 Mr Valmorbida's evidence was that neither Mr Kinsella nor Mr Stonier (or any other representative) of the first defendant had sought, and that APW had not given, any indication about supporting the first defendant if it ceased relations with the plaintiff and resumed its own distribution operation. 66 On 28 February 2007 Mr Robert Cincotta, APW's accountant, sent an email to Messrs Kinsella and Stonier regarding stock and future supply advising that Mr Valmorbida required their group to underwrite the total debt owing to him (meaning APW), to cover any legal costs in recovering the money or defending his position and to pay interest on amounts not paid according to APW's normal commercial terms. 67 On 28 February 2007 Mr James emailed Mr Valmorbida requesting an opportunity to outline the facts about Mr Stonier and the relationship with the first defendant and expressing a willingness to meet. Mr James made it clear that the plaintiff would use all its resources "to protect the business that we purchased and paid for". 68 On 28 February 2007 Mr James, on a letterhead of Redrock Distributors, wrote to Mr Valmorbida amongst others asking him to reconsider his decision not to supply the plaintiff and asserting a preliminary view that APW's conduct contravened the Trade Practices Act. 69 On 1 March 2007 the first defendant commenced trading in its own right as a non-alcoholic beverage distributor under the name, Redrock Beverages, selling Split Rock supplied by APW. 70 On about 6 March 2007 the plaintiff commenced these proceedings initially seeking an injunction restraining the first defendant from continuing with its soft drink distribution business. 71 On 12 March 2007 Mr James wrote a lengthy letter to Mr Cincotta in which, amongst others he said that the plaintiff would like to continue to distribute APW's products "whether on an exclusive basis or whether initially on a non exclusive basis." 72 On 19 March 2007 Brereton J declined to restrain the first defendant; Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392. However, His Honour required it to maintain strict and comprehensive accounts of its business and to deliver a monthly account verified by affidavit as well as provide the plaintiff a reasonable opportunity each week to inspect the original accounts and source documents. It is not suggested that the first defendant has not complied with the Court's orders. 73 In March 2007 the plaintiff circularised its customers informing them that two of its senior employees had left and started up a rival business trading under a similar name. It informed the customers that the plaintiff would be changing its trading names to Bluestar Beverages. It also stated that it was currently "unable to source the brands Spiltrock [sic] and Tiro" and would keep customers updated. 74 Since about October 2007 the plaintiff has been marketing a competitive range of soft drinks known as Bravo with similar flavours to Tiro. 75 On 30 March 2007 on a Bluehills Liquor Distributors letterhead, Mr Brooks wrote a lengthy letter to APW's solicitors asserting, amongst others, that the plaintiff had a damages claim against APW and would not be paying monies claimed by APW "even once they are technically payable under the terms of the contract". 76 All parties accept that the joint venture ended no later than 23 February 2007. It may have ended on 21 February 2007, but the difference is immaterial for present purposes. Whether the joint business survived the termination is another question. THE PLAINTIFF'S CASE 77 During the course of final submissions the plaintiff sought, and was granted leave to amend its Commercial List Statement. The amendments excised a significant number of averments and substantially narrowed its case. 78 As prefatory averments the plaintiff pleads that in October 2005 the first defendant was conducting the business of distributing Split Rock and Tiro brands of soft drinks under the business name "Redrock Beverages" and that the first defendant was in financial difficulty. It pleads that in order to stave off insolvency of the first defendant, Messrs Kinsella and Stonier approached the plaintiff and proposed a joint venture. As against the first defendant

79 As against the first defendant the plaintiff pleads that: a in about October 2005 the plaintiff and the first defendant entered into an agreement which constituted a joint venture between them; b it was the intention of the plaintiff and the first defendant that the joint venture business would be held by them for the benefit of both; c in the premises, each owed to the other a fiduciary duty not to appropriate the joint venture business for themselves; d using the names Redrock Beverages and Redrock Distributors the plaintiff and the first defendant as "joint venture partners" built up goodwill and a reputation in the market for soft drinks as the distributor in New South Wales of Split Rock and Tiro brands by which the business names Redrock Beverages and Redrock Distributors became synonymous with the joint venture; e the first defendant has breached that duty by appropriating the joint venture business for its own benefit and to the exclusion of the plaintiff; f by reason of the breach of fiduciary duty, the plaintiff has suffered loss and damage being: i. loss of the plaintiff's share of the joint venture business; and ii. loss of profit share. 80 In oral submissions the plaintiff's case was articulated as follows: a as a consequence of the entry into of the agreement and its performance, the plaintiff and the first defendant came jointly to own the following assets (which I shall for convenience refer to as "the common assets"): i. the customer list (or rather the information embodied in the customer list) which had been developed during the existence of the joint venture; ii. the business names Redrock, Redrock Distributors and Redrock Beverages; iii. the trademarks (including the bottle cap logo) used in connection with the names Redrock, Redrock Distributors and Redrock Beverages; iv. the books and records of the joint business; v. the website www.redrockbev.com.au; vi. the telephone numbers which the first defendant obtained from Telstra for use in the business conducted by it from 1 March 2007; b in breach of its fiduciary duty not to appropriate the joint venture business for itself the first defendant has appropriated the joint venture business including the common assets for its own benefit, to the exclusion of the plaintiff. 81 The refined articulation of the plaintiff's case does not include any reference to goodwill nor does it define the term joint venture business. 82 I have taken the term joint venture business to mean the business conducted by the plaintiff and the first defendant under the name Redrock Beverages for the supply and distribution of Split Rock, purchased from APW. I have also taken that the claim for equitable compensation must entail that the first defendant has appropriated to itself the goodwill of the joint venture business, that is the ability of the joint venture business to generate earnings from the use, amongst other things, of the common assets. 83 As to relief, initially the plaintiff sought: a primarily, the appointment of a receiver to the common assets so as to facilitate their realisation for the joint benefit of the plaintiff and the first defendant, together with equitable compensation equivalent to the profit it

says it would have earned from the joint venture business had it continued, to the date of the appointment of the receiver; and b secondarily, if a receiver is not appointed, an award of equitable compensation equivalent to a one half share of the value of the joint venture business as at the date the joint venture ended. 84 During submissions, however, counsel for the plaintiff shifted position, moving to the position that the secondary relief was more appropriate because: a the value of the common assets and profits to the date of the proposed receiver's appointment could not exceed the value of the joint venture business and that the plaintiff would be wholly compensated by the value of a half share in the value of the joint venture business; and b there would be limited utility in selling or trying to sell the items of common property given that a buyer would not be obtaining any right to distribute Split Rock. 85 The plaintiff's claim for the appointment of a receiver is put exclusively on the basis that the common assets are jointly owned. This requires it to establish that it acquired, and still has, a proprietary interest in the common assets standing alone and not in connection with their use in the joint venture. 86 Framed this way, the plaintiff says that it has an entitlement to share in the proceeds of the common assets which entitlement is unaffected by the fact that it brought about the termination of the joint venture. This is because, it says, its proprietary interest in the common assets was acquired before that event and survives it. 87 The plaintiff's claim for equitable compensation involves establishing the value of the joint venture business as at the date of termination of the joint venture or the value of the profits it would have earned had the joint venture business run on. 88 A contention in the Further Amended Commercial List Statement that the first defendant holds the business it currently conducts on constructive trust for the benefit of the plaintiff and the first defendant in the ratio 51:49 was not pressed. 89 No account of profits is claimed, apparently amongst others because the first defendant's present business has been running at a loss. So much was asserted, without demur, from the bar table. It was also asserted without demur that the first defendant's present business has a costs structure which is not comparable to that of the joint venture business. As against Messrs Kinsella and Stonier 90 As against Messrs Kinsella and Stonier the plaintiff pleads that they caused the first defendant to breach its fiduciary duty by making preparations for the first defendant to appropriate the joint venture business and caused it to do so by: a obtaining registrations of trade marks and business names with the intention of keeping the benefit of the registration for the first defendant; b obtaining a lease for the first defendant of warehouse premises and motor vehicles; c obtaining funding from Westpac Banking Corporation with which the first defendant could operate the joint business to the exclusion of the plaintiff; d obtaining an agreement from APW prior to 22 February 2007 that APW would supply the first defendant with Tiro and Split Rock soft drinks to the exclusion of the plaintiff; e on 23 February 2007 informing APW that the first defendant had in effect taken the joint venture business; and f causing the first defendant to continue to operate the joint venture business to the exclusion of the plaintiff. 91 The only relief sought against Messrs Kinsella and Stonier is an award of equitable compensation, to be assessed in the same way as that claimed from the first defendant. 92 Averments that the first defendant and Messrs Kinsella and Stonier were under an obligation to obtain for the plaintiff an exclusive distribution agreement for Split Rock from APW and that which they breached it by not attempting to obtain such a right but instead obtaining it for the first defendant, was removed by the amendment to the Commercial List Statement. As against the fourth defendant 93 The plaintiff pleads that APW assisted the breaches of fiduciary duty in that: a from at least 9 November 2006 to 23 February 2007 it knew the plaintiff and the first defendant conducted the joint business of selling Tiro and Split Rock soft drinks using the name Redrock Distributors; b it knew that the joint business was being conducted for the joint benefit of the first defendant and the plaintiff; c it knew that the first defendant was not as of 23 February 2007 entitled to appropriate for itself the joint business; d from at least 1 January 2007 to 28 January 2007 it assisted the first defendant to appropriate the joint business by agreeing to supply first defendant with Tiro and Split Rock soft drinks; and e after 28 February 2007 it assisted the first defendant to appropriate the joint business by in fact supplying the first defendant with Tiro and Split Rock soft drinks to the exclusion of the plaintiff. 94 The only relief sought against APW is an award of equitable compensation, to be assessed in the same way as that sought from the first defendant. 95 A claim against APW for common law damages for unlawful interference with contractual relations was abandoned. THE RECEIVERSHIP CLAIM 96 A receiver is a person appointed to take possession of, get in or recover property for the benefit of the persons who are ultimately determined to be entitled to it. The appointment of a receiver is an equitable remedy; see R Meagher, D Heydon and M Leeming Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed (2002), ch 28. 97 The power to appoint a receiver is to be found in s 67 of the Supreme Court Act 1970, which is in the following terms: The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 98 In Ritchie's Uniform Civil Procedure NSW, the authors comment in relation to s 67 that generally an applicant must show a right which will be protected and enforced by the appointment and that no other available remedy is adequate for that purpose. 99 The appointment of a receiver is discretionary and the discretion is a wide one. 100 The plaintiff's application for the appointment of a receiver is based on the premise that the common property is jointly owned. If it (or any part of it) is jointly owned, the occasion for the exercise of the discretion arises. If it is not, then its application falls at the first hurdle. 101 The first defendant accepts that both it and the plaintiff have a proprietary interest in the customer information generated during the joint venture (which was included in the customer list of the joint venture business) and the information contained in the books and records of the joint venture business. It denies that the plaintiff acquired any proprietary interest in any other of the common assets. 102 It puts that even if both the plaintiff and the first defendant have a proprietary interest in any of the common assets the Court should decline to appoint a receiver because it is not just or convenient to do so in that: a the appointment is of no utility given the common property is effectively worthless without the right (or ability) to obtain Split Rock; b the information in the customer lists and books and records is available to both of them; c the common assets including the name Redrock Distributors (which it accepts the parties mutually contemplated would be used in the joint enterprise), are elements in goodwill and the plaintiff has acted in such a way as to preclude the sale of goodwill to a stranger, and it has no right to insist upon a sale of the common assets even if they could be sold apart from the joint venture business; and d the plaintiff is barred from obtaining discretionary equitable relief because it comes to court with unclean hands. 103 With respect to unclean hands the first defendant relies on the following: a the deliberate failure by Mr James to sign the Heads of Agreement after the first defendant had changed its position from an independent stand alone operation to a co-venturer dependent upon Mr James and his companies and vulnerable to their conduct; b the plaintiff's conduct in disavowing "the $2.50 per case arrangement" and the profit distribution arrangement set out in the Heads of Agreement; c the plaintiff's conduct in denying the existence of an agreement between them; and d the plaintiff's conduct in seeking to require the first defendant to agree to terms inimical to the parties' agreement including that the business operate under the name Blue Hills, that Mr Stonier no longer be involved in the joint business, with funds allocated to his cost to be freed up for distribution as profits to the plaintiff.

104 The parties did not direct the Court to any authorities with respect to the test to be applied in determining whether the common assets are jointly owned. Argument proceeded on the basis that the test is one of the intention of the parties, to be objectively ascertained. 105 The plaintiff submitted that indications that joint ownership was contemplated are that there was to be a jointly owned corporate entity and that there was to be a mechanism for one party to acquire the other's interest. 106 The first defendant submitted that at the plaintiff's instance the Heads of Agreement was not implemented and that even if it had been, the parties' interests were to be held not directly but via a shareholding in a corporate entity. It put that the trading name Redrock, the distinctive bottle cap logo, the email address and website were pre-owned by it and that it provided their use of the name Redrock (whether used alone or together with Beverages or Distributors), the logo and the website for the use of the joint business while it existed. It put that nothing indicated an intention on its part to convey any proprietary interest in them. It put that the free call telephone numbers came into existence and were obtained after termination of the joint venture and could therefore not be jointly owned. 107 The Heads of Agreement contemplated the incorporation of RD Company trading as Redrock Distributors. Had that occurred, unless RD Company changed its name, it would (or at least could) have traded under the name Redrock Distributors without the need for any right to do so being conferred upon or conveyed to it. Nothing in the Heads of Agreement requires, or indicates an intention on the part of, the first defendant to convey or dispose of any interest in the name Redrock or the logo. Nothing in the Heads of Agreement indicates any surrender by the first defendant of the use its own name or Redrock Beverages or the logo. It continued to use them in its own right without complaint from the plaintiff. 108 The substratum of the joint venture was the marketing and promotion of soft drinks under a contemplated exclusive arrangement with APW and in which the parties would have designated roles and areas of participation. The business name Redrock, logo, website and email address were made available by the first defendant for use in connection with the joint venture business. 109 It is artificial to suggest, as the plaintiff does, that it acquired in its own right a proprietary interest in any of the names Redrock, Redrock Beverages and Redrock Distributors let alone one which would endure beyond the enterprise for which the first defendant made them available. 110 The following observations of Bowen CJ in Eq in Alcock v Robb (1978) 2 BPR 9625 at 9627 (although made in the context of a partnership) are apposite to the present case: The right to use a partnership name is an element in goodwill. On dissolution, in the absence of express provision in the partnership agreement covering the matter, the prima facie right of the partners is to have the partnership assets, including goodwill, sold, and the proceeds applied first in discharging liabilities of the partnership and then by way of distribution to the partners. In the case where goodwill is sold following dissolution, the purchaser will be entitled not only to represent himself as the successor of those who formerly carried it on, but also to use the name, and to restrain others from using it.

... If goodwill including the firm name is to be sold, no previous partner will be entitled thereafter to use the firm name. Such a right would be inconsistent with the right of the other partners to have the goodwill sold for the common benefit of all. On the other hand, if the goodwill is not to be sold, either because the partnership agreement contains a contrary provision, or because the partners agree on terms of dissolution which preclude its sale, or because they act in such a way, as, for example, by dividing the clients between them, as to render the sale of goodwill impracticable, then each partner may continue in business in competition with his former partners; each may represent himself as 'late of' the old firm; and each may use the old firm name, provided he does not hold out that the other members of the old firm are still in partnership with him, and does not use the name in such a way as to expose his former partners to the risk of liability: Banks v Gibson (1865) 34 Beav 566; Burchell v Wilde [1900] 1 Ch 551; Chappell v Griffith (1885) 53 LT 459; and Scott v Bail [1914] VLR 270; cf Hill v Fearis [1905] 1 Ch 466 and In re David and Matthews [1899] 1 Ch 378; and see Lindley on Partnership , 13th Ed, pp 469-70; Halsbury's Laws of England 3rd Ed vol 28 pp 560, 580, 582.

111 Subsequent to the judgment of Bowen CJ in Eq, a fresh summons was filed relating to matters in controversy between the parties to the suit including as to how the partnership should be wound up. The matter was dealt with by Needham J. His Honour made the following observations which are equally apposite: In my opinion, once a business comes to an end goodwill in it can no longer exist. If the former partners so desire, they can sell the assets of the business, including goodwill, but such a sale would prevent any of them from soliciting the custom of the former clients of the firm. They may, alternatively, sell the business to one of their number. In that case, an allowance for goodwill would be proper. If, however, the former partners decide to give up the business and go their separate ways, it seems to me that they destroy the goodwill of that business. Each of them would be liable to restraint if it were to be suggested that they were carrying on the old business. The agreement of the former parties that clients would be circularized and given the opportunity of choosing which of the former partners should perform their work is not an agreement to divide goodwill in specie. No former client can be held to his decision and each could go where he wished. Each party remains entitled to use the name (an integral part of the former goodwill) and the goodwill which each of the former partners builds up is his own goodwill, ie the goodwill of his new business. It cannot be equated or identified with a portion of the former goodwill. 112 As early as May 2006, the plaintiff was already unhappy with the deal it had done. It seems that it was suffering from what might be described as joint venturer's remorse. It had committed to providing warehousing and distribution at a price which transpired to be cheap. It was unhappy about the first defendant's cash drain even though it was on notice of this before they became associated with each other. By the end of January 2007, Messrs Stonier and Kinsella had concluded with justification that they were unable to rely on the plaintiff to make the payments which they believed were owing under the parties' arrangements. The plaintiff's position became abundantly clear on 9 February 2007 when Mr Brooks referred to "the alleged agreement". By 16 February 2007 he was, in heavy handed terms, denying the existence of an agreement. Significantly, his email of that date envisaged discontinuing "the business unit" if new arrangements satisfactory to the plaintiff were not negotiated. On 21 February 2007 Mr James brought the relationship (in practical if not in legal terms) to an end. 113 Although APW was not bound to supply the joint venture, one of the consequences of the plaintiff's conduct was to bring about the end of its relationship as a buyer from APW directly or on behalf of the joint venture. 114 Even if the plaintiff acquired any rights to use the names, logo, website or email address which survived the termination (which in my view it did not) its conduct was such as to destroy any goodwill the joint venture business had. The common assets were an element of that goodwill. By its conduct the plaintiff precluded the sale of any goodwill to a stranger. 115 Under cross examination (presumably in an attempt to establish a proprietary interest in the names Redrock Beverages, Redrock Distributors and the logo), a concession was obtained from Mr Stonier that the steps taken by him in February 2007 to obtain trademark registrations of the names Redrock Beverages, Redrock Distributors and the logo, were taken for the benefit of both the plaintiff and the first defendant. Even if this be the case, it does not follow that the plaintiff obtained any proprietary interest in them. Had the joint venture continued, the registration would have shored up the first defendant's ability to make the marks available for the use in the joint venture business. In any event, I do not accept Mr Stonier's evidence in this respect. In my view he was acting to secure only the first plaintiff's position

116 The plaintiff has not established any right to insist on the sale of the names, website or email address even if they could be sold apart from the joint venture business. Similar considerations apply to the customer lists and the information in the books and records. 117 I also accept the first defendant's submission that there would be no utility in the appointment of a receiver. The property of which he would be seized would be of little or no value. It seems to me that the inference is available that the appointment is seen as a means to deprive the first defendant of the benefit of the use of that property rather than to achieve a sale for the benefit of it and the plaintiff. 118 I turn to the question of unclean hands. 119 It is a principle that he who comes to equity must come with clean hands. In Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 at 650 Gleeson CJ said of it that: "The application of that principle as a bar to discretionary equitable relief has been considered in such cases as Meyers v Casey (1913) 17 CLR 90, Hewson v Sydney Stock Exchange Ltd (1967) 87 WN (Pt 1) (NSW) 422 and FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552. The unmeritorious conduct which debars relief is not "general depravity"; it must be conduct which has "an immediate and necessary relation to the equity suited for": Dering v Earl of Winchelsea (1787) 1 Cox 318 at 319; 29 ER 1184 at 1184-1185; see also Keystone Driller Co v General Excavator Co 290 US 240 (1933)." 120 I consider that this bar to the grant of relief to the plaintiff has been made out. The plaintiff's course of conduct which brought the joint venture to an end including the disavowal of a significant feature of the joint venture (namely the $2.50 per case logistics and warehousing allowance), the insistence on Mr Stonier's withdrawal, and ultimately the denial of any agreement at all was unmeritorious and has the immediate and necessary relation to the equity suited for. The immediacy of the relation is demonstrated by the irony that the plaintiff now prays in aid of its relief the very agreement which it stridently, and in a display lacking commercial morality, disavowed. 121 In coming to this conclusion I have taken into account the conduct of the first defendant and Messrs Kinsella and Stonier in early 2007, in particular in February, in taking steps to place the first defendant in a position to commence business in March 2007, at a time when the joint venture was still on foot. Those steps were in my view a direct reaction to the plaintiff's course of conduct in disavowing the joint venture agreement. They also had no actual effect on the joint venture business. In relation to the customer lists Mr Stonier's evidence (which I accept in this respect) was that they had previously always been sent to him as a matter of course. 122 In all the circumstances the appointment of a receiver would be neither just nor convenient and the plaintiff's application for such an appointment is refused. THE EQUITABLE COMPENSATION CLAIM AGAINST THE FIRST DEFENDANT 123 The plaintiff's claim for equitable compensation is put on the basis (and requires it to establish) that the first defendant had a fiduciary duty not to appropriate "the joint venture business" for itself, and that the first defendant breached that duty by so appropriating that business. It claims equitable compensation to make good its loss caused by that breach. 124 Given that relief in the form of the appointment of a receiver is refused, the plaintiff's position is that the equitable compensation should equate to a one half share of the value of the joint venture business as at termination of the joint venture. 125 Before considering this claim, it is necessary briefly to set out the legal principles and precepts which governs its determination. Fiduciary duties 126 Fiduciary relationships are sometimes called relationships of trust and confidence. Their critical feature is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical way; see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-7. 127 There are traditional or accepted categories of fiduciary relationship. They include principal and agent, and partners and company directors in relation to the company. The categories are not closed.

128 The scope and extent of fiduciary obligations will depend on the nature of the relationship: Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 at 256-8. In Hospital Products v United States Surgical Corporation at 97, Mason J explained the relationship between a contract and a fiduciary relationship which existed with it as follows: "The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."

129 Where fiduciary obligations arise because of a contractual relationship, the terms of the contract will affect the scope and extent of the fiduciary obligations between the parties, not the other way round. It is necessary to consider the particular circumstances to determine what particular obligations are owed. 130 In United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 a joint venture arrangement not yet formally documented for the development of certain land was held to be analogous to a partnership and to create a fiduciary relationship between the venturers. 131 A well-known fiduciary obligation which is imposed on partners, agents and company directors is the duty to act in the interests of their principal, partner or the company as the case may be. An aspect of this is the cognate duty to refrain from putting themselves in a position where their own personal interests conflict with the interests of their principal, partner or the company as the case may be. It is a general principle of equity that a person in a fiduciary relationship is obliged to account for personal benefit or gain obtained in circumstances where such a conflict exists; see Chan v Zacharia (1984) 154 CLR 178 at 198 per Deane J. 132 Generally, fiduciary obligations do not survive the ending of the fiduciary relationship; see Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed, at 5-010. 133 In a well-known passage in Chan v Zacharia at 198-199 Deane J said: The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, e.g., Phipps v. Boardman [61]; N.Z. Netherlands Society "Oranje" Inc. v. Kuys [62]), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co. Pty. Ltd. v. Stuart Walker & Co. Pty. Ltd [63], at p. 350.

Equitable compensation 134 One of the remedies available for breach of fiduciary duty is a personal remedy against the fiduciary requiring him to make good any loss caused by his breach. In Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1 the Court of Appeal said at 90, [431]-[432]: The rules for the recovery of equitable compensation are less developed than the rules for proprietary remedies in equity. The rigour of the remedy is of comparatively recent vintage. At this stage of the development of the remedy, each case requires a precise focus on both the nature of the obligations and the nature of the breach. The authorities on this matter have recently been reviewed in O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-273. The law in Australia was there held to be as stated by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 439: "… Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common­sense, can be seen to have been caused by the breach"; and by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163: "… it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach." Consideration 135 The issues which fall for determination are: a whether the plaintiff has established the existence of the fiduciary duty it pleads and if so, whether the first defendant breached it; b whether the plaintiff suffered loss as a consequence of any breach and if so, the extent of that loss; and c whether the plaintiff's conduct is a bar to equitable relief in its favour. 136 The fiduciary duty asserted by the plaintiff to be owed by the first defendant is one not to appropriate the joint venture business for itself to the exclusion of the plaintiff. This articulation is not framed in traditional terms. Nevertheless, I have taken it to be an assertion of: a a duty on the part of first defendant not to put itself in a position where its own personal interests conflicted with the interests of the plaintiff; and b a breach of that duty by obtaining a benefit or gain for itself in circumstances where it was in such a position and failed to act in the interests of the joint venture (and therefore the plaintiff). 137 Put another way, the complaint may be characterised as one that the first defendant diverted to itself opportunities which were properly those of both parties in association.

138 The defendants submitted that the relationship between the plaintiff and the first defendant was not of a fiduciary nature in any respect but rather simply a contractual one which brought about an association in which the plaintiff and the first defendant were each free to act entirely in their own interests. 139 It is necessary to consider the terms and characteristics of their arrangement to determine whether it imposed fiduciary obligations and if so, the nature of those obligations. 140 Their relationship bore some analogy with a partnership, at least to the extent that they joined with each other to further a common enterprise. Each contributed its expertise and, to a greater or lesser extent financially, with a view to a profit. 141 However, the joint venture was premised on a number of fundamental assumptions. These included that the first defendant would perform the sales functions and the plaintiff the logistic and warehousing ones, and that Split Rock would be available to the joint enterprise from APW. 142 I have no difficulty in concluding that for so long as the enterprise was on foot the nature of the parties' contractual arrangements and the relationship brought about by them, subjected them to a fiduciary duties to act in the interests of both parties with respect to the joint venture business and to avoid putting themselves in a position where their personal interests conflicted with that duty. For example, neither party was free to bypass the joint venture by acquiring Split Rock from some other source and selling it to customers for its own exclusive benefit. 143 But those duties did not continue once the joint venture ceased to exist. 144 The plaintiff's claim that the first defendant appropriated the joint venture business assumes that after 21 February 2007 there was such a business. 145 For each of the following separate reasons which are in turn elaborated upon below, I have concluded that the plaintiff's equitable compensation claim against the first defendant must fail: a from 21 February 2007 there was no joint venture business for the first defendant to appropriate to itself; b if the joint venture business was in existence and the first defendant appropriated it, the plaintiff has not established that it had any value and accordingly has not established that it suffered any loss; and c the plaintiff comes to equity with unclean hands. 146 On 21 February 2007 the plaintiff brought the joint venture business to an end. Essential elements of the joint venture then ceased to exist. The first defendant no longer had any participation. The joint enterprise no longer had any practical ability to purchase Split Rock from APW. 147 The first defendant (by Messrs Kinsella and Stonier) had made preparations to commence business and be operational by 1 March 2007. Before that date, however, the plaintiff brought the joint venture business to an end. It follows that the business which the first defendant commenced in early March 2007 is not and cannot properly be described as the joint venture business. It also follows that from 23 February 2007 at the latest each was free to go its own way and to act entirely in its own interests. 148 It follows further that the plaintiff has made out neither the fiduciary duty it pleads nor the breach of it by the first defendant. 149 Although it is not necessary to do so, I will nevertheless consider whether, even if the asserted fiduciary duty and its breach had been made out, the plaintiff has established any loss. 150 The plaintiff called an expert forensic accountant, Mr Kitson, to provide an opinion "concerning the value of the plaintiff's loss by virtue of the [first defendant] appropriating the joint venture for itself". He was directed to provide his valuation as at 23 February 2007. He was directed to assume that the joint venture had an exclusive entitlement to distribute Split Rock and that this right was a right belonging to the joint venture which survived its termination. He opined on three alternative assumptions: that the future life of that right as at February 2007 was one year, that it was three years, and that it was enduring forever. 151 It is not necessary to consider the last of these assumptions. It is manifestly unrealistic and the plaintiff did not motivate it. 152 Mr Kitson chose as the appropriate valuation methodology one of the conventional methodologies, the discounted cash flow (or DCF) method. It entails determining the net present value of the projected cash flows of the joint venture and an assessment of how much a third party at arm's length would be prepared to invest to receive the projected profit distributions from the joint venture. 153 Conventionally, projected cash flow is assessed and discounted by a percentage to reflect the present value of a future income stream at the risk free rate to which is added a percentage to reflect the risk of non receipt taking into account the characteristics of the particular enterprise. 154 Mr Kitson was presented with financial data estimating the future profit yield of the joint venture business. He applied to this an initial discount of 12.5%, being the current corporate overdraft rate. He assumed that a notional investor would spend $10,000 on due diligence and would pay corporate tax at 30%. He then applied an additional discount of 25% to the one year scenario and 20% to the three year scenario. 155 In February 2007 Mr Stonier created spreadsheets for presentation to Westpac which had sales forecasts from February to September 2007. For the purposes of the proceedings, Mr James prepared tables utilising Mr Stonier's forecasts and making forecasts of his own for the years ended June 2008, 2009 and 2010. 156 Mr James made forecasts of the sales and marketing costs (after deducting logistics costs) that would have been incurred on three alternative scenarios. Scenario 1 was that the marketing costs were restricted to the salaries of Messrs Stonier, Kinsella and Rubbo. Scenario 2 was those costs plus the salary costs of three other employees who worked in the joint venture business. Scenario 3 was scenario 2 plus other costs. Scenario 3 self evidently involves the greatest deduction. 157 Mr Kitson was presented with and asked to assume the correctness of these forecasts. 158 Objection was taken to admission into evidence of Mr James' costs forecasts on the basis that they are speculation and that Mr James was not an expert witness. I admitted the material provisionally. Although the forecasts are inherently uncertain, so are all forecasts. Mr James, it seems to me, has specialised knowledge of the cost structures of the type of operation which the joint venture conducted and that his forecasts were substantially based on that knowledge. Apart from some minor respects, the defendants did not attack Mr James' methodology or the identification of the types of costs he took into account. I will accordingly admit Mr James' evidence. But the evidence has significant shortcomings which go to its weight. Mr Kitson did not audit or express any opinion on the validity of Mr James' costs and expenses. He has a direct and vital interest in the proceedings and his cost estimates were prepared in the context of this litigation. Nevertheless, with the one exception referred to below, I have approached the matter on the assumption that his costs forecasts are accurate.

159 Mr Kitson opined on the value of the joint venture business based on the projected profits for the three months ending June 2007 and for the years ending June 2008, 2009 and 2010. 160 Counsel for the plaintiff did not make submissions as to which of Mr James' costs scenarios was appropriate. In particular he did not put that less than the full costs actually incurred would have to be deducted in determining profit. He did not seek to justify Mr James' scenarios 1 and 2 which do not deduct the full costs. 161 Utilising these projections and Mr James' scenario 3, Mr Kitson's figures resulted in net present values of the joint venture business of $42,354 for the year ending March 2008, and $130,041 for the three years ending March 2010.

162 As previously mentioned, Mr Kitson was instructed to assume that the joint venture had an exclusive entitlement to distribute APW products and that this was a right which survived termination of the joint venture.

163 Under cross examination he accepted that if there was no such right, the joint venture business would effectively have little or no value.

164 Mr Kitson accepted that if there was such a right, the longevity of it would be a critical integer in valuing the joint venture business.

165 In my view, the joint venture (that is the plaintiff and the first defendant in association) had no contractual right of exclusive distribution of Split Rock from APW. If it did, it was either terminable by APW at will or on reasonable notice. 166 It was not suggested by the plaintiff that the rights under any exclusive distribution agreement which the first defendant may have had with APW (as reflected in the letter of engagement) were assigned or novated to the plaintiff and the first defendant as joint venturers. To the contrary the Heads of Agreement envisaged negotiation of an agreement with APW. Also the 9 November 2005 email to APW made it clear that the purchaser of Split Rock would thenceforth be Liquor National. The arrangement reflected in the letter of engagement was by then clearly at an end. Mr Valmorbida was approached to agree to an exclusive distribution agreement with Liquor National but declined to do so. 167 As a matter of practical reality, APW's only distributor of Split Rock in NSW and the Australian Capital Territory became the plaintiff in association with the first defendant but neither (alone or in association) had any contractually binding right to exclusivity, and certainly not one which survived the termination of the joint venture. 168 It follows that the plaintiff has failed to make out the validity of Mr Kitson's critical assumption of a right and entitlement belonging to the joint venture that survived its termination. It follows further that the plaintiff has failed to prove that the joint venture business had any value as at the date of its termination. 169 Mr Kitson's evidence provides a safety check for my conclusion that the common assets on their own have no real value.

170 Even if (contrary to what I have found) the joint venture (or more exactly the parties to it) had a contractual right or entitlement to be APW's exclusive distributor, it may safely be inferred from the nature and subject matter of the agreement that which the right or entitlement was for an indefinite period it was not in perpetuity. At worst it was terminable at will and at best terminable on reasonable notice; see Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443 - 444. A fortiori this was the position with respect to any contractual arrangement between APW on the one hand, and the plaintiff in association with the first defendant on the other. 171 In Crawford Fitting Co v Sydney Valve & Fittings at 444 McHugh JA said: When a contract is terminable on reasonable notice, the period of notice must be sufficiently long to enable the recipient to deploy his labour and equipment in alternative employment, to carry out his commitments, to bring current negotiations to fruition and to wind up the association in a businesslike manner: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 200-201); Australian Blue Metal Ltd v Hughes (at 99) and W K Witt (W A) Pty Ltd v Metters Ltd (at 24-25). But in the latter case Hale J denied (at 23) that it is relevant to the reasonableness of the period of notice that the recipient needs time to recoup any expenditure incurred. 172 The plaintiff directed no submissions directed to establishing that either one year or three years (or any other period) would have been a reasonable period of notice for terminating an exclusive distribution arrangement with APW (assuming the joint venture parties had one). It failed to make out the validity of Mr Kitson's assumptions of a right and entitlement belonging to the joint venture that survived its termination for either of those periods (or for that matter a right enduring forever). Mr Kitson did not opine on any other assumption. For these additional reasons the plaintiff has failed to prove that the joint venture business had any value as at the date of its termination. 173 Even though the plaintiff did not direct itself to the question, it was put on behalf of APW that reasonable notice would have been immediate or at least very short. What can be said is that within two or three days the plaintiff had wound up its association with the first defendant, had changed its trading names and was carrying on business as usual, except without the ability to sell Split Rock. By October 2007 it was marketing a competitive product with the same flavours called Bravo. Whatever period may have been reasonable, clearly even the one year period assumed by Mr Kitson would have been far too long. 174 The plaintiff's claim for equitable compensation has other difficulties. 175 Firstly, I do not consider that Mr Stonier's forecasts may safely be relied on. His forecast for February 2007 was that 13,860 cases would be sold. The joint venture was still on foot for that month and in fact it only sold 11,758 cases. Because of the termination of the joint venture at the end of February 2007, it is the only month in respect of which his forecasts may be tested against reality. Reality reveals that his forecast was optimistic by a significant margin. In addition, for the reasons set out below, I consider that Mr Stonier is prone to exaggeration. In this instance, perhaps ironically, it works in his favour. 176 Secondly, no account was taken in determining profit of additional costs that the first defendant met, such as supplying free fridges and vehicles for its representatives, which costs a notional buyer would have incurred. 177 Thirdly, Mr Kitson did not, in my view, give any (or sufficient) weight to the unreliability of Mr Stonier's forecasts. When he prepared his report he did not know that the February 2007 forecast had proved to be over optimistic. Also, Mr Kitson's valuation was as at 23 February 2007 on the assumption that the plaintiff was entitled to a 50% share in the profits from that date. But under the Heads of Agreement the first defendant was entitled to all of the profits up to 1 April 2007. Mr Kitson accepted that this would have an effect on this valuation as at 23 February 2007 in respect of which he said "I can't quantify it but it would be minimal." The consequence is that the discount factor applied by him does not take sufficient account of the risk that the joint venture would fail to generate the assumed returns and, in my view, is significantly understated. Assuming all other things in the plaintiff's favour, no evidence was elicited from Mr Kitson nor were any submissions made which would enable the Court to determine an appropriate discount rate on a modified set of assumptions. It is not incumbent on the Court to pluck a figure out of the air: see Troulis v Vamvoukakis [1998] NSWCA 237 at 29. 178 The consequence is that the plaintiff's claim for equitable compensation must fail. THE CLAIM AGAINST MESSRS KINSELLA AND STONIER 179 The principal averment against Messrs Kinsella and Stonier is that they caused the first defendant to breach its fiduciary duty. Although it is asserted that they breached by making preparations as well as by actually causing the first defendant to appropriate the joint venture business, the only breach pleaded against the first defendant itself is that of appropriating the joint venture business to itself. 180 For the reasons the plaintiff fails against the first defendant in its claim for equitable compensation, it also fails against Messrs Kinsella and Stonier. 181 It was not suggested that the steps that Messrs Kinsella and Stonier took preparatory to the first defendant commencing its own operation caused the plaintiff any loss.

THE CLAIM AGAINST APW Accessory liability 182 The claim against APW is accessorial to the claims against the first defendant. 183 The principal averment against APW is that it assisted the first defendant's breaches of fiduciary duty. The plaintiff having failed against the first defendant, it follows that it fails against APW as well. 184 But it fails too for the additional reasons which follow. 185 Although not expressly so articulated, the claim against APW is one under what is traditionally described as the second limb in Barnes v Addy (1874) LR 9 Ch App 244. This type of liability has recently been comprehensively considered by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 from which the following may be derived: a the action lies against third parties who assist in a breach of fiduciary duty with knowledge, provided that the relevant breach of fiduciary duty is dishonest and fraudulent; b "knowledge" includes actual knowledge, wilful blindness and reckless indifference, as well as acceptance of the proposition that the morally obtuse cannot escape failure to recognise an impropriety that would have been apparent to an honest person; c such conduct, as a matter of ordinary understanding, and as reflected in the criminal law in Australia, can be categorised as a person having acted dishonestly; and d it accordingly follows that it is necessary for the plaintiff to prove that the fourth defendant: i. assisted the first defendant to breach its fiduciary duty to the plaintiff; and ii. did so dishonestly, knowing that the first defendant was acting with a dishonest and fraudulent design. 186 Mr Valmorbida's evidence was that: a he did not have knowledge of the terms of the arrangement between the plaintiff and the first defendant; b before receiving the letter dated 23 February 2007, no one on behalf of the first defendant sought any assurance from him that if the first defendant were to terminate its relationship with the plaintiff APW would terminate its relationship with the plaintiff (or Liquor National) or thereafter agree to use the first defendant as sole distributor in NSW and the ACT; c no indication had been sought from nor had any been given by APW that it would support the first defendant if it ceased relations with the plaintiff (or Liquor National) and resumed its own distribution operations; and d after the receipt of the letter dated 23 February 2007 he had to make a quick decision whether to go with the plaintiff or the first defendant and he elected the latter because he had a long standing rapport with Mr Kinsella and was ultimately unsatisfied with business relations between APW and Liquor National. 187 I accept Mr Valmorbida's evidence. The plaintiff has failed, and failed by a wide margin, to establish that APW either participated in a breach of fiduciary duty or that it had the requisite knowledge. Nothing done by APW can remotely be described as dishonest. 188 It was put that Mr Valmorbida's evidence that there was no arrangement to go with the first defendant in preference to the plaintiff should not be accepted because there was material in evidence (which emanated from Mr Stonier) that APW had given an assurance that it would go with the first defendant rather than the plaintiff. Statements to that effect were made in Mr Stonier's note in relation to the 6 December 2006 meeting and in the Bank manager's note of 23 February 2007. 189 Both Messrs Kinsella and Stonier gave evidence that no such assurance was sought from APW and that none was given. Mr Stonier's evidence was the statement in the note indicated an intention to investigate such a proposition were it to become necessary. He conceded that it was an overstatement. 190 I find that if he made the statement to the Bank manager, he did so without foundation. Mr Valmorbida was not at the 6 December 2006 meeting and was not party to any communication with the Bank. 191 Mr Stonier's evidence was that the statement in the 16 February 2007 email to Colliers International that they would not be renewing the contract at the end of February was not "necessarily" accurate. Rather "It was a statement made to an agent, a leasing agent or a real estate agent, that suited my position with them at the time." 192 Mr Stonier was not an impressive witness. In my view what he wrote and recorded is symptomatic of a tendency on his part to exaggerate. On his own version what was written to the real estate agent was at best economical with the truth. 193 Mr Valmorbida on the other hand was an impressive witness who was unshaken in cross-examination. 194 The plaintiff accepted that if Mr Valmorbida's evidence was accepted its claim against APW must fail. It fails. 195 It fails for the additional and independent reason that the plaintiff did not establish that APW's conduct contributed to any loss suffered by it. By the time APW chose to go with the first defendant the joint venture had ended. It was entitled to go with whom it chose. The plaintiff's inability to obtain Split Rock arose out of APW's legitimate refusal to supply, not any participation by it in any breach or alleged breach of duty by the first defendant.

CONCLUSION 196 The plaintiff's claims are dismissed. 197 The plaintiff is to pay the costs of each of the defendants. 198 No party put that if the plaintiff failed, the orders of Brereton J of 19 March 2007 should continue. They are accordingly discharged. 199 The exhibits are to be returned.

18/12/2009 - Plaintiff's solicitor entered incorrectly - Paragraph(s) cover page 10/02/2010 - amend the word "with" to "without" - Paragraph(s) 107

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